As soon as you know that you are going to file a bankruptcy
STOP PAYING ON
EVERYTHING EXCEPT THE THINGS YOU WANT TO KEEP.
So there are (1)
Things you do WANT to keep (or have to keep), and (2) Things you do NOT want to
keep (or can’t keep).
(Important Note: If
you are going to be in a Chapter 13 payment plan bankruptcy case, we must
discuss each and every “thing” to see whether you should keep making the
payment yourself, or if the lender will be paid through your payment plan.)
(1) Things You Want
Say, for example,
you want to keep a car with a loan on it. Keep making the payments, in full,
and on time, before your bankruptcy case is filed, and after your bankruptcy
case is filed, and after your case is done and closed. The same thing goes for things
like a house, utilities, or a storage area.
This MAY also apply
to things you have to keep, because you can’t discharge the debt in a
bankruptcy case, like recent income taxes, or student loans. You CAN stop
paying for these in your bankruptcy case, but the debts aren’t going away, so
if you have the money, you might as well keep making the payments. Support
obligations should be paid consistently without stopping.
--- Things Bought
with Department Store Credit
This DOES NOT apply
to things you have bought on credit, like furniture or appliances, even if the
lender has a “security interest” in the items you have purchased.
While it is true
that the lender can (a) go to state court, (b) get a judgment for the return of
the things, (c) take that judgment to the local sheriff, and (d) have the
sheriff come to your house and get the things, the reality is that the lender
almost never does this, because it costs a lot more money to get these things
than they are worth.
So, do NOT continue
to pay for these things, because you will very likely be able to keep them,
even without paying anything further. We can discuss each thing in question to
see if there is any good reason to pay anything more to the lender.
--- Credit Cards You
Want to Try to Keep
Every debt you have (along
with every asset), must be listed in your bankruptcy case. There is no keeping
anything out of your case. An interesting exception is a credit card with no
balance. It is neither an asset nor a debt.
However, all credit
cards you have will very likely be closed shortly after your case is filed,
even if you do not list a particular card in your petition. This is because you
could theoretically do something to have your bankruptcy case dismissed, run up
the balance on a credit card, and then re-file a new case, and include the new
So, no card is worth
trying to keep in your bankruptcy case, even if you only owe a few dollars on
the card. Do NOT charge up anything on any credit card just before filing (that
could be viewed as fraud), but also do NOT pay off any card (or any other loan)
before filing a case.
--- HOW TO PAY for
the Things You Want to Keep
Once your bankruptcy
case is filed, no lender can continue to take money out of your account, even
if you want them to do so. The “automatic stay” that protects every bankruptcy
filer prevents any lender from taking money out of your account.
However, the lender
can (and must) still accept money from you. Use your bank’s bill pay website (or
an old-fashioned check) to make payments to such lenders, rather than going to
the lender’s website. Using your bank’s bill pay service (or a check) is
sending money to the lender; using the lender’s website is asking them to take
your money out of your account, which they can no longer do once your case is
Some lenders have a
different payment address to which they want you to make payments after your
bankruptcy case is filed. Check your statement carefully, or call the lender to
see if they have a different address to which to send money.
(2) Things You Do
NOT Want to Keep
This is the really
important part, so here it is again: As soon as you know that you are going to
file a bankruptcy case, stop paying on everything except the things you want to
There are two
important points here: Stop sending anyone money for those things; and, Don’t
let anyone get your money for those things.
--- Stop Sending
Make sure that you
cancel any automatic bill payments you may have set up. Also, make sure to call
the lender, or go to the lender’s website, and cancel any automatic payments
(electronic funds transfers – EFTs).
BEFORE calling the
lender to tell them to stop taking money out of your account, get all the money
out of your account, and don’t let any more money go in. Some unscrupulous
lenders, like payday loan companies, might try to take your money anyway, even
if they promise you on the phone to stop taking it.
--- Don’t Let Anyone
Get Your Money
Stop banking with
any bank to which you owe money.
If you owe your bank money for anything, you have already given them
authorization, with your credit application, to take money out of any deposit
account (checking, savings, etc.) you have with them. They will take your money
when you least expect it.
Banks don’t take
money out at every chance they get; this would drive many of their customers to
start banking with a shoebox hidden underneath their bed. Instead, banks look
at things like how much you owe, how late you are in your payments, how much
you normally have in your account, and how much you have in your account at any
When these factors
hit the right numbers, the bank’s computers instantly draft your account, and
the money is gone. We’re then left fighting to try to get it back, which we
might be able to do if your case is filed within 90 days of the draft, but this
costs more money. The best way to keep your money is to not lose it in the
The only exception
to this is for a bank that you only owe money to for a house or car you know you
are going to keep.
Yes, I know full
well that changing banks is annoying and time consuming. But ask yourself this:
Would I do 3 hours worth of work – getting cash out of accounts, opening new
accounts, getting new checks, setting up bill payees at the new bank, AND
transferring direct deposits, etc., - to save $900 from a bank or lender
The answer is a
definite “Yes;” you would certainly work at a rate of $300 an hour for 3 hours, even if was annoying.
If you do NOT owe
your bank anything (other than a house or car loan you’re going to keep), then
the question is whether you have given any other lender authorization to take
money out of your account. If you’ve ever used that other lender’s website to
pay them, or paid with a “check by phone,” then you have done so.
In this case, you
could keep your bank, but you should still close out the old account and open a
new one. Make sure to tell your bank, when switching accounts, not to honor any
further drafts made on the old account.
As soon as you know
that you are going to file a bankruptcy case, stop paying on everything except
the things you want to keep.
Stop banking with
any bank to which you owe money. This means get your money out, and don’t let
any more money go in, through direct deposit or otherwise.
IT’S YOUR MONEY –